Water companies that pay excess dividends should be forced to cut prices for
customers, according to former industry regulator Sir Ian Byatt.

Backing a report by CentreForum, the think tank, Sir Ian said that “many companies, especially the private equity infrastructure funds, have paid out excessive dividends to their owners”.

He advocated the introduction of “some form of dividend control”, whereby “payments of dividends above those assumed by the regulator when setting price limits, would be accompanied by reductions in the tariffs paid by customers”.

The report made wide-ranging criticisms of the industry, with companies also singled out for borrowing so much they cannot finance their own infrastructure improvements.

It said Thames Water’s request for taxpayer support for its multi-billion-pound “super sewer” project across London – despite recording bumper profits over a number of years – showed that the industry’s priorities are wrong.

Firms should be charged a levy for over-borrowing, it said, and be forced to be more transparent at a time when most English water companies have passed into the hands of private equity funds.

The comments echo those made by Jonson Cox, Ofwat's chairman, who has called for water companies to share unintended gains with consumers.

Writing in the Telegraph last month, Mr Cox said some water companies' profits and tax-reducing corporate structures were “morally questionable”

He also accused unlisted water utilities of failing to meet corporate governance rules and vowed to “lift the veil” on “practices that do not stand the test of public interest” a

Mr Cox, an industry veteran who was head of Yorkshire Water and of Anglian Water at the time it was taken private, said: “I am not popular for having raised difficult questions, but it is better to improve corporate structures and behaviours by reasonably firm encouragement now, rather than being forced to take stronger action later.”